Ambiguity in Agent Liability on Promissory Notes under Maryland Commercial Code § 3-402(b)

Introduction

Cross River Bank v. 3 Bea’s Assisted Living LLC, decided June 4, 2025 by the United States Court of Appeals for the Fourth Circuit, addresses whether a company’s owner who signs a PPP promissory note can be held personally liable when her signature could plausibly be read as made in a representative capacity. Connie Stewart, sole member and registered agent of Three Bea’s Assisted Living LLC, signed a Small Business Administration Paycheck Protection Program (PPP) loan note before receiving any funds. When the loan went unpaid, Cross River Bank sued both the LLC and Stewart individually. The district court granted summary judgment for the bank, holding the note “clear and unambiguous” on Stewart’s personal liability. On appeal, the Fourth Circuit vacated in part and remanded, concluding the note is ambiguous and directing consideration of Maryland Commercial Code § 3-402(b).

Key issues:

• Does the promissory note unambiguously impose personal liability on Connie Stewart?
• How does Maryland law—and specifically § 3-402(b) of the Commercial Code—govern the effect of a representative’s signature on a negotiable instrument?
• What standard of contract interpretation applies to resolving ambiguity in such notes?

Parties:

• Plaintiff–Appellee: Cross River Bank
• Defendants–Appellants: Three Bea’s Assisted Living LLC; Connie Stewart; (David Stewart, Jr. not before this court)

Summary of the Judgment

The Fourth Circuit held that the district court erred in granting summary judgment on the issue of Stewart’s personal liability. Although the note’s first page names “Connie Stewart” as “Borrower” and a later clause declares “all individuals signing this Note are jointly and severally liable,” the note’s final page places “Three Bea’s Assisted Living” under the “Borrower” heading, followed by Stewart’s signature introduced by “By:.” Considering the contract as a whole, the court found a reasonably prudent person could interpret Stewart’s signature as made solely in her representative capacity.

The court vacated that portion of the judgment and remanded for:

1. Consideration of whether the promissory note is a negotiable instrument under Maryland Commercial Code § 3-104(a); and
2. Application of § 3-402(b)(2) to determine if Stewart’s form of signature is “unambiguous” in imposing personal liability.

Analysis

Precedents Cited

• Jenkins v. Karlton, 620 A.2d 894 (Md. 1993) – Contract‐interpretation principles apply to promissory notes.
• Lithko Contracting, LLC v. XL Ins. Am. Inc., 318 A.3d 1221 (Md. 2024) – Objective approach to ambiguity: a contract is ambiguous if a reasonably prudent person could ascribe more than one meaning.
• Ocean Petroleum Co. v. Yanek, 5 A.3d 683 (Md. 2010) – Absent ambiguity, give effect to contract language as written without considering subjective intent.
• Hecht v. Resolution Trust Corp., 635 A.2d 394 (Md. 1994) – An inchoate entity acts only through its agents; disclosed principal doctrine shields agent from liability.
• Curtis G. Testerman Co. v. Buck, 667 A.2d 649 (Md. 1995) – If an agent fully discloses principal, and the note is signed in representative capacity, the agent is not personally liable.
• Seabulk Offshore, Ltd. v. American Home Assurance Co., 377 F.3d 408 (4th Cir. 2004) & Salve Regina Coll. v. Russell, 499 U.S. 225 (1991) – Standard of de novo review for questions of state law and summary judgment.

Legal Reasoning

1. Contract Interpretation Rules: Maryland treats a promissory note as a contract, applying ordinary rules of construction. Interpretation is purely legal and objective: where language is clear, courts honor it; where ambiguous, extrinsic context may be considered.

2. Ambiguity Analysis: Although the note’s first page labels Stewart as “Borrower” and imposes joint liability on signatories, the final signature block identifies “Three Bea’s Assisted Living” as Borrower, with Stewart signing under “By:.” This contextual tension creates ambiguity over whether Stewart signed in her personal or representative capacity.

3. Disclosed Principal Doctrine: Under Maryland law, if an agent clearly discloses the identity of his principal when signing a negotiable instrument and uses a form of signature that indicates his representative status, the agent is insulated from personal liability unless otherwise agreed.

4. Maryland Commercial Code § 3-402(b): This provision governs when a representative’s signature lacking explicit agent language does (or does not) create personal liability. On remand, the district court must determine whether the note is negotiable and, if so, whether Stewart’s signature “does not show unambiguously” that it was made in a representative capacity, thereby triggering the special rules of § 3-402(b)(2).

Impact

This decision clarifies how courts should handle ambiguous signatures on PPP and other commercial loan documents under Maryland law. Lenders must ensure:

• Clear designation of borrower entities versus individual agents;
• Explicit representative‐capacity language or placement of signatures;
• Conformance with UCC § 3-402(b) to secure personal guarantees when intended.

Agents and small‐business owners gain protection where form‐contract templates fail to unambiguously create personal liability. Future litigants will point to this case when construing similarly ambiguous signature blocks and will push drafters to tighten language or expressly disclaim agency.

Complex Concepts Simplified

• Negotiable Instrument: A signed document promising to pay a fixed amount on demand or at a set time, freely transferable like a check or promissory note.
• Joint and Several Liability: A clause making each signatory individually responsible for the entire debt, unless ambiguity or agency rules apply.
• Disclosed Principal / Agent: When an agent signs on behalf of a known principal, the principal, not the agent, is generally liable—provided the signature shows it is representative.
• Ambiguity in Contracts: Exists if a reasonably prudent person could interpret the terms in more than one way; triggers consideration of extrinsic context and may preclude summary judgment.
• UCC § 3-402(b): A Maryland adaptation of the Uniform Commercial Code rule clarifying when agency signatures on negotiable instruments give rise to personal liability.

Conclusion

Cross River Bank v. 3 Bea’s Assisted Living LLC establishes that a PPP promissory note’s ambiguity regarding an owner‐agent’s personal liability precludes summary judgment and requires careful application of Maryland Commercial Code § 3-402(b). The Fourth Circuit’s decision emphasizes:

• The paramount importance of analyzing the entire contract context when determining liability;
• The protective scope of the disclosed principal doctrine for corporate agents;
• The need to explicitly draft loan agreements and signature blocks to reflect the parties’ true intent regarding personal guarantees.

As a result, both lenders and agents must scrutinize form loan documents to avoid unintended exposure or unwarranted defenses, and district courts must apply § 3-402(b) when signature form creates genuine ambiguity.